MARKET OUTLOOK

Paper industry embraces the potential of sustainable packaging

Article by John Nelson, Editor, Smithers

At the dawn of the 2020s The following article explores some of the fundamental the global paper industry is having to adjust to an trends within the paper industry, and the opportunities for suppliers, printers and converters. While the outbreak of coronavirus continues to disrupt global supply chains and evolving set of market financial markets, the underlying trends within the paper look conditions. Demand for set to continue. printing papers continues In the short-term looking at China there was a shutdown of to drop. As a result paper mills in Hubei for several weeks as the province went into paper firms are being a lockdown. Given its role in global manufacturing and logistics challenged to diversify there has been a rise in demand for recovered paper (RCP) in into other markets, such as specialty papers; and China, and Beijing has already removed tariffs on imports of recycled paper pulp shipments from the US for this year. It is likely that as other states go into lockdown paper mills will be expand their fibre-based slowed or idled. packaging portfolios. In the longer term there is likely to be a global recession and the evidence of the 2008 Great Recession is that this will affect different paper segments differently. In developed markets demand for packaging is generally fairly resilient to economic downturns, though the expansion of consumption of packaged goods in developing markets is liable to slow. Publication and graphic grades are likely to feel more of an impact, and advertising print will certainly see a drop in demand as marketing budgets get squeezed.

NEW DYNAMICS IN PAPER SUPPLY

Volumes of printed papers are progressively being eroded by the digitisation of information. From 2018-2019 woodfree paper shipments in Europe dropped by roughly 1.3 million tonnes, with around two thirds of this in coated grades. Data from the latest Smithers report – The Future of Global Printing to 2024 [1] – shows that in 2019 overall demand for woodfree and newsprint was 72.1 million tonnes worldwide, having dropped from 86.7 million tonnes in 2010. The decline has been sharpest in newsprint as total volumes of printed newspapers fell from 17.3 trillion A4 print or equivalents in 2010 to 13.5 trillion in 2019. This has prompted multiple mill closures or refits to produce papers for new applications. The closing or repurposing of these assets has barely kept pace with the decline in demand however and future machine changes are likely. For example, in Q4 2019:

■ International Paper cut output of its P3 newsprint machine at

Kwidzyn in Poland ■ UPM has struggled to divest its Chapelle Darblay newsprint mill in France.

Smithers forecasts publication print will continue to fall through the first half of the 2020s, with the exception of books. Book publishing was hit hard through the 2010s, but is now being reinvigorated by the arrival of new digital printing presses opening up opportunities in long-tail publishing and print-on-demand services driven by e-commerce platforms. Overall this is not enough to counter the decline in other publication media such as newspapers, catalogues and directories, and a further falling off of demand for graphic papers.

MARKET REALIGNMENT

The challenge for the paper industry as it enters this new decade is

thus one of diversification. The global packaging industry continues to expand into new markets, especially in Asia; and there is new interest in paper packaging formats from brand owners, as consumers and legislators look to reduce the use of plastics. Another option is repurpose existing machine assets to produce more specialty grades, for use in industries such as decor, filtration, industrial applications, labels, and packaging. Specialty paper typically need to be designed to meet specific end-use requirements and consequently have more demanding technical specifications. There are many reasons for moving into the specialty segment, but the leading ones are the higher profitability specialty grades offer compared to commodity products that could be made on the same equipment; and reduced competition as fewer paper machines are configured to deliver specific grades. Smithers forecasts specialty papers demand will rise at a rate of 2.3% year-on-year. Having reached a projected 25.03 million tonnes in 2019, annual global consumption is forecast to exceed 28 million tonnes for in 2024.[2]

In this market, papers for flexible packaging applications are now growing well above the market average, in particular for machine glazed, waxing base and CS1 grades. Overall packaging (not including labels and release liners) consumed an estimated 7.09 million tonnes of specialty papers in 2019, with the market forecast to increase to 8.03 million tonnes in 2024. Label papers will grow at a slower rate from 3.82 million tonnes to 4.10 million tonnes across this period. This is a very diverse segment however and the future outlook is often linked to broader technological developments and the suitability of paper compared to other materials. Consumption of non-specialty paperboards is also showing robust

John Nelson growth at 3.6% year-on-year. Demand for printed packaging paperboard will be 175.8 million tonnes in 2024, up from 147.1 million tonnes in 2019; and 113.4 million tonnes in 2024. The majority of this expansion is accounted for by developing economies, China in particular, where consumers are moving from traditional wet markets into western-style supermarkets, buying packaged goods for the first time.

A SUSTAINABLE FUTURE

For developed markets the paper industry is seeing a major opportunity from the current backlash against plastics pollution. Paper and pulp is readily understood to be a sustainable product by consumers and has become the preferred alternative material for a brand to demonstrate its sustainability credentials. Europe has taken the lead on the issue with the adoption of the Single-Use Plastics Directive in June 2019 [Insert Box Out]. The Canadian government of Justin Trudeau has committed to a phase out of similar disposable plastics from 2021, and Japan will to cut its consumption of single use plastics by 25% by 2030. India announced similar plans in Q3 2019, but then stepped back from what were very ambitious timelines. In January 2020, China also published draft plans for reducing use in packaging and other applications through to 2025. In the US, California however has looked to introduce a bill with similar requirements. Initially rejected in Q4 2019, a revised version is expected to be passed in 2020. Several states and cities have also acted to outlaw expanded polystyrene (EPS) cups and take-out trays. This is creating a direct impetus to develop alternative paper-based formats to replace singleuse plastics; mainly in food service formats, such as cups, straws and trays.

BRAND OWNER COMMITMENTS

Brand owners are also showing a new commitment to the environment. The majority of the biggest FMCG companies have commitments to reduce their use of plastic packaging. Supermarkets and retailers – such as Walmart, Kroger, and Tesco – are also pushing for more sustainable solutions in own brand and third-party goods. As taking responsibility for the environment becomes a more central part of global corporate citizenship goals, packaging in particular has become an area of focus. It is part of the brand experience that customers directly handle, and are responsible for disposing of. Consumers typically view paper formats as sustainable and easy to recycle. This is a broader trend than that directed by single-use plastics legislation on specific products. Combined these present a major opportunity for paper suppliers and packaging converters to diversify their product portfolios and secure new markets.

SUSTAINABLE DESIGN

The challenge is to develop paper and pulp concepts that can match the performance of existing plastic packaging formats – for which brands and retailers are willing to pay a price premium. This trend is now accelerating. In several recent industry surveys Smithers has identified the following market opportunities:

Beverage cups

Substituting paper cups for plastic faces many of the same challenges and the need for recyclable moisture barrier technologies, especially for hot-fill beverages. In response several companies have also developed cupstocks coated with the biopolymer polylactic acid (PLA), which enable biodegradation at end-of-life. Global capacity for this material remains limited. The nascent bioplastics industry is looking to shift from the first generation of PLA made from crops, like sugarcane, to formulations made from resources that do not require prime agricultural land to produce. For hot beverages thermal insulation is again a concern. The paper or kraft sleeve is a common sight in the takeout coffee segment, but there is pressure to phase these out as they are seen as another piece of superfluous packaging. In response double wall paper concepts have been developed.

Barrier pouches

Several companies are advocating coated papers as an easier to recycle solution to replace flexible plastic pouches. Japanese paper firms are active in this area.

■ Mitsubishi has the BarrierCote platform for aqueous coated papers. This are being marketed at several applications, including heat-sealed bag packaging of dry and greasy foods. ■ Nippon Paper is beginning trial line production of its SheildPlus coated papers with development partner Jujo Thermal of Finland. Commercial runs are set to begin in June 2020. Nippon reports that these can have oxygen and water vapour permeation levels equivalent to aluminium deposition films. ■ Futamura also has its NatureFlex line of cellulose films and coatings.

In Q3 2019 Koehler Paper announced a €300 million investment in a new paper machine aimed mainly at applications in dry foods. There are remaining challenges in this segment. First barrier papers are not suitable for all applications, especially those that include high heat sealing, high pressurisation, or retort cooking. So initial entry will be for products that do not require the highest level of barrier performance, such as confectionary, dry soups, coffees, and flour bags. Second to adapt flexible papers to run on existing flexible packaging machinery and printers it is important to improve surface evenness to match these of polymer films. This can be done via advances in curtain coating machinery. Third transparency is important for flexible packaging – allowing customers to examine the goods inside. This is particularly desired by healthy or natural brands.

Paper straws

Plastic straws are a product that is named specifically in the single-use plastic directive and will be banned in the EU from July 2021. Brands are simultaneously embracing pulp based drinks straws:

■ Starbuck’s has already committed to using only paper straws in its outlets ■ Freisland Campania will replace 100 million plastic straws with paper straws by the close of 2020 ■ Mc Donald’s also trialled the concept in multiple markets in 2019.

There are still technical performance issues to address. BillerudKorsnäs has developed the U Bend paper straw, which can be bent through 180°, using its shapeable paper technology. This makes it a viable alternative for drinks cartons, and has already undergone trials with Tetra Pak in mid-2019. The outstanding issue remains that paper straws still dissolve in contact with liquids. The current goal is to have a straw that lasts at least an hour, but there is still scope to innovate to extend this.

Specialty paper market shares by paper type, by tonnage, 2019

CONCLUSION

Both specialty grades and innovation for more packaging formats are liable to be on the radar of decision makers at paper companies in the next five years as they look to evolve their businesses. The specialty paper segment offers the opportunity for greater profitability than commodity graphic grades. Companies that take this route will need to bear initial capital expenditure in new equipment, and retrain staff to proSource: Smithers duce more technically exacting grades. As the market becomes more crowded however, increased competition is liable to put a renewed emphasis on innovation moving forward. Specialty paper grades for packaging in particular will see good growth, as will non-specialty grades into this industry. Expansion in developed markets is increasingly being shaped by the sustainability agenda. Led by Europe, single-use plastics bans are already providing a strong initial impetus for new concepts. This is being welcomed by brands, which have their own sustainable packaging commitments. The majority of these green citizenship goals have a deadline of 2025. Combined these two influences will underpin further innovation and market applications for paper packaging to this date. Whether this continues into the second half of the decade will depend on the appetite for further commitments from both end-users and governments. As there is no one solution to making packaging more sustainable, paper makers face the challenge to exploit their current advantage now, before re-engineered plastic concepts are ready for a full market rollout. This will generate an impetus for closer collaboration with packaging suppliers, converters and coatings developers. As this happens there will be more mill closures for graphic papers, and there will be price competition as more commodity paper firms move into the speciality space. This will place higher priority on certain more specific growth areas. https://www.smithers.com/en-gb/services/marhttps://www.smithers.com/en-gb/services/marketreports/paper/the-future-of-specialty-papers-

MAIN IMPLICATIONS OF THE EU SINGLE-USE PLASTICS DIRECTIVE:

The EU Single-use Plastics Directive 2019/904, will introduce the following restrictions on plastic food and foodservice packaging formats:

■ Bans on single use plastic cutlery, plates, beverage stirrers and drinking straws from July 2021 ■ Bans on takeaway food containers and beverage cups made of expanded polystyrene (EPS) from July 2021 ■ A ban on all products made from oxo-degradable plastics as of July 2021 ■ Cuts to consumption of single-use non-EPS plastic beverage containers and trays, to hit new mandated targets by 2026. ■ Extended producer responsibility schemes (EPR) for suppliers of the single-use plastic products, applying a “polluter pays” principle, from De-

[1] The Future of Global Printing to 2024 ket-reports/printing/the-future-of-global-printingto-2024 [2] The Future of Specialty Papers to 2024 cember 2025.

to-2024 [3] The Future of Functional & Barrier Coatings for

Paper & Board to 2024 https://www.smithers.com/en-gb/services/marketreports/paper/barrier-coatings-for-paper-andboard-to-2024 [4] The Future of European Food & Drink Packaging to 2023 https://www.smithers.com/en-gb/services/marketreports/packaging/european-food-and-drink-packaging-to-2023